Wednesday, March 18, 2009
Deciding Between Whole Life and Term Life Insurance
By Michael Collins
When choosing life insurance, one of the most important decisions that one must make is whether to purchase a whole life policy or a term life policy.
Whole life policies, once enacted, will cover the policyholder from that day until the day that they die. This is good for policyholders because they will no longer have to worry about dying unexpectedly and being uninsured. However, this comes with a price. Whole life policies are far more expensive than term policies, because lifetime coverage guarantees payment upon the death of the policyholder. Whole life insurance is essentially a savings account. The policyholder pays the insurance company throughout the duration of their life, who will pay the beneficiary upon the policyholder's death. Whole life policies are considered assets, so they can be borrowed against or surrendered early for cash.
Term life insurance are generally considered to be a more cost-effective option, especially for younger people. Terms can be anywhere from one to thirty years. Because the policy can expire, there is a chance that the insurance company will not have to pay, so rates are lower; although they get higher with age. A major drawback to term, however, is that it is not considered an asset and has no cash value.
Overall, both types of life insurance have advantages and drawbacks. However, I believe that term life insurance is superior, mainly due to the cheaper rates. Whole life insurance may be attractive, but the money that would go toward the high rates could simply be invested or put in a savings account by the policyholder and have a similar effect.